June 10, 2008

James Perdue, chairman of Perdue Incorporated, a large poultry producer made some interesting comments recently about chicken prices.

Perdue told The Examiner that prices for chickens “are going to have to go up 10 percent,” but he couldn’t estimate how much higher they might go.

And why are chicken going to have to increase by 10% or more?

The culprit is the rising price of corn, which is the main source of chicken feed. More than a third of all corn is going to produce ethanol, a fuel added to or used instead of gasoline.

It would appear that Perdue Incorporated is joining in with others in the meat industry in blaming ethanol for rising food prices. But the part that I thought was really interesting is that Perdue Incorporated has it's own biofuels division called Perdue BioEnergy LLC that has contracts to sell corn for ethanol production.

In May 2006, Perdue signed an agreement to provide corn to Northeast Biofuels LLC for an ethanol plant to be built in Fulton, New York.

This reinforces in my mind what I think is really going on. Look at it this way, if ethanol production continues as is, they profit from grain sells to ethanol plants but the high feed prices hurt their poultry production profits. If ethanol production ends, they lose the grain sells to ethanol plants, but poultry profits go up because feed costs go down. But under this circumstance, the general public would expect chicken prices to go down.

So the best possible scenario for meat producers would be for the public to buy into the "it is all ethanol's fault" line of thinking. That way Perdue could keep the grain sells contracts and raise the prices of chicken to whatever level they want.